Makeover paid dividends for RS Core Equity

Mani Govil turned RS Core Equity into a top-ranked mutual fund by selling most of the stocks held by his predecessor and adding shares of technology, health-care and energy companies.

Govil started running the $853 million fund in August 2005 after it had lagged behind 95 percent of its peers during the previous five years.

He has since sold almost all of the stocks held by his predecessor, including Wachovia, Lehman Brothers Holdings and Merrill Lynch, which plunged with the collapse of the subprime-mortgage market.

RS Core Equity has returned an average of 9.9 percent a year under Govil, beating 98 percent of funds that invest in large-company stocks, according to Morningstar, the Chicago-based financial-information company.

"The fund needed a decisive turnaround," Govil said in an interview from his New York office. "We completely changed the portfolio."

RS Core Equity Fund, owned by San Francisco-based RS Investments, has three out of a possible five stars from Morningstar, which also assigns it a three-year Sharpe ratio of 0.55, compared with -0.07 for rivals. A higher Sharpe ratio means better risk-adjusted returns.

Morningstar puts the fund in its large "blend" category, which includes a mix of value and growth stocks. Value stocks are those deemed cheap on the basis of yardsticks such as earnings, while growth companies are those that increase earnings faster than peers. The fund identifies companies that have an edge over competitors, in terms of market share or new products, Govil said.

The fund gained 2.4 percent in the past year, through Aug. 20, also beating 98 percent of the competition, Morningstar's data show, while keeping 17.4 percent of its assets in financial stocks, the worst performers of the Standard & Poor's 500 Index.

Govil's picks among financials include Goldman Sachs Group, MasterCard and People's United Financial.

"They've avoided a lot of stocks that have blown up, and that really speaks to the manager's stock-picking ability," said Morningstar analyst Marta Norton.

Govil has 16 percent of assets in information technology, 15 percent in health care and 13 percent in energy. His top holding, at 6.1 percent of assets, is Houston-based Halliburton, the world's second-largest oilfield-services provider. Drugmakers Abbott Laboratories and Celgene are among the fund's top 10 holdings. The fund also holds Nokia Oyj, the Espoo, Finland-based cellular-phone company, and San Diego-based Qualcomm, the world's biggest maker of mobile-phone chips.